FDI inflow from tax havens ticks up

Asjadul Kibria | Published: May 18, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

Foreign direct investment (FDI) from global tax havens to Bangladesh has been increasing over the years.
Statistics of the Bangladesh Bank (BB), the central bank, reveal that the FDI flow from six tax havens increased four times in the last six years.
The six tax havens are Bermuda, British Virgin Island, Cayman Island, Mauritius, Panama and Seychelles.
The total FDI flow from these islands and territories rose to $76 million in 2015 from $17 million in 2010.
More than a half of the FDI, however, came from the British Virgin Island last year.
The ratio of the FDI from the tax havens stood at 3.40 per cent of the net inflow that stood at $ 2,232 million ($2.23 billion) last year.
Mostly small islands and few developed and developing countries serve as the tax havens, where people and corporate entities can safely park their tax-evaded incomes and assets.
These places offer low or zero tax rates for parking or investing their money without any question and facilitate reinvestment in, or rerouting of the stashed assets to the original or other countries.
"The FDI from tax havens may be a double whammy for Bangladesh," said Professor Mustafizur Rahman, executive director of the Centre for Policy Dialogue (CPD).
"Firstly, it is very likely that these are part of the money stashed from the country by dodging taxes. Secondly, some of the stashed money again enters the country as foreign investments to take the advantage of tax and other incentives."
According to the Global Financial Integrity (GFI), a Washington-based organisation, illicit financial flows (IFF) from Bangladesh stood at $9.66 billion (Tk 740 billion) in 2013.
It also showed that in the last 10 years (2004-2013) dirty or black money worth $ 55.87 billion flowed out of the country to avoid taxes.
The economist, however, added that forensic investigation is required to detect the source of such FDI.
"Available data is not sufficient to say whether it is round-tripping or not," he added.
Round-tripping is a money laundering technique. If a Bangladeshi businessman secretly transfers his illegal income or financial asset to the tax haven and then brings back it as FDI to whiten it, it is considered round-tripping. Â
"After the Panama Papers' leak, it is important to examine such inflow of FDI," he added.
"Even tax-dodged money from other country may come into Bangladesh through any tax haven to avail benefits on offer for foreign investment."
Official statistics do not fully reveal in which sectors the money are invested. Partial statistics, however, indicate that a good amount of FDI came into the textile sector. For instance, FDI from British Virgin Island and Mauritius stood at $35.31 million and $ 13.69 million respectively in the textile and apparel sector.
The CPD chief also suggested right application of the transfer pricing rules to detect capital flight from the country and check rerouting of capital flows.
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